Good morning, and welcome to the Cousins Properties Third Quarter Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead.

Good morning, and welcome to Cousins Properties third quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. In particular, there are significant risks and uncertainties related to the scope, severity and duration of the COVID-19 pandemic, along with the direct and indirect impacts that the pandemic and related mitigation efforts, including governmental requirements and private sector responses, may have on our financial condition and operating results and those of our customers. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of potential risks, including those posed by COVID-19, is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly.

Thank you, Pam, and good morning, everyone. At Cousins, we firmly believe, if our dedicated employees provide excellent service for our customers, our company will drive strong results for shareholders. We have stayed true to this guiding principle even under the toughest circumstances. Over the past three quarters, I have been so proud that we have ably navigated a challenging COVID environment while providing our customers with the excellent service they expect from us every day and caring for the team. But before discussing our long-term outlook, I want to quickly highlight our third quarter results. We reported FFO of $0.69 per share. We collected 98% of total rent, including 99% from office customers. We leased 255,000 square feet with a weighted average lease term of over six years. We increased second-generation cash rents by 9%. The office component of our 1.9 million-square-foot development pipeline is 82% leased. And lastly, we closed the quarter with net debt-to-EBITDA of 4.24 times and more than $1 billion of liquidity. In a normalized environment, these would be solid results. In a global pandemic, these are terrific results and reinforce the quality of our markets, our portfolio and our customers. While new leasing was slower during the quarter due to a summer spike in the Sunbelt COVID cases, since Labor Day, we have seen an encouraging uptick in leasing tours and discussions across our portfolio. In addition, economic development agencies in Atlanta, Austin, Charlotte, Dallas, Phoenix and Tampa are all active with potential prospects looking to redistribute employees out of the Northeast, Midwest and California. While the duration of COVID-19 is likely to impact the office market into 2021, the combination of both in-market and out-of-market activity gives us optimism for Sunbelt outperformance in the quarters to come. I'll now turn to the trends…

Thanks, Colin, and good morning, everyone. Following up on Colin's remarks, I'm happy to report that with continued hard work from our team and a best-in-class Sunbelt portfolio, we were able to deliver solid third quarter operating results. But before I move into operating results, I want to update you on general business conditions relative to the pandemic. First, an update on physical occupancy or utilization of our 19.4 million square foot portfolio by our customers. As you'll recall, from the first days of the pandemic through the summer, utilization of our properties was consistently well below 10%. Since Labor Day, however, we have seen a steady increase, with utilization currently at an average of 20% across the company. I would also note that some properties are operating at utilization of 50% or more. The recent utilization trend is decidedly positive, but our sense is that utilization will not move materially higher from here until sometime in 2021. Once again, I am pleased to report that rent collections remain solid. We collected 98.2% of rent from all customers and 98.7% of rent from office customers in the third quarter. 100% of our top 20 customers paid rent this quarter. Additionally, September was our strongest collections month since the pandemic began, and October rent currently stands at 98% collected. As in prior quarters, these numbers reflect the impact of rent deferral agreements completed to date. With regard to rent deferral activity, in short, there is very little happening at this time. As a reminder, the total cash rent deferred in the second quarter was $7.5 million or 1.1% of annualized contractual gross rents. In the third quarter, we added 0.1% to this total, such that total cash rent deferred is now 1.2% of annualized contractual gross rents. As of today, what…

Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing a brief overview of our quarterly financial results and activities, including some detail on our same-property performance, our receivables data and our development pipeline, followed by a quick discussion of our balance sheet and dividend before closing my remarks with updated information on our outlook for the remainder of 2020. All things considered, third quarter numbers were solid and have held up relatively well since the onset of the pandemic. For a little perspective, third quarter FFO was down about 4% from last year. Year-to-date same-property cash NOI remains positive at 2.1%, and we've continued to roll up rents on a cash basis over 15% during the first nine months of 2020. Based on our recent share price performance, you might have been led to think that Sunbelt fundamentals have deteriorated much more severely than they actually have. Turning to our same-property performance. Cash net operating income during the third quarter declined 3% compared to last year, which was consistent with my comments on last quarter's earnings call. This was driven by a 4.1% decline in revenues and a 5.8% decline in expenses. The largest item driving our same-property performance remains the fiscal occupancy within our buildings. As Richard discussed earlier, while still well below pre-COVID levels, physical occupancy did improve during the third quarter, and our parking income followed suit. After declining 30% during the second quarter, parking income fell 18.4% this quarter compared to last. Still not great, but improving. Excluding payment deferrals and parking income, same-property cash NOI increased 0.3% during the third quarter. Before moving on to our development pipeline, I wanted to touch on customer receivables. During the third quarter, FFO was reduced by approximately $475,000 due to a combination of rent write-offs and…

The first question comes from Blaine Heck of Wells Fargo. Please go ahead.

Can you guys just discuss the interest in the Bank of America space in Charlotte? I think you guys had around 40,000 square feet come out this quarter and another 200,000 or so at the end of the year. I guess, based on any interest you have there, do you have any sense of how long should we expect the backfill to take? And maybe how many tenants do you envision taking that space?

Sure, Blaine. Good morning. This is Richard. I'll start off with this one. BofA, we've had decent interest. As the activity in our pipeline has picked up, we have also seen some activity pick up there. So we did sign one deal for a partial floor at BofA Plaza in the third quarter, which was encouraging. And say, we have one full floor candidate in the pipeline right now. That looks encouraging. We've had tours for as much as a 5-floor candidate recently. So I think the mix there, ultimately, as we restat vacancy up, is going to be pretty broad-based. I think we should, over time, find that we'll be able to find a larger user, at least one, and then we'll probably multi-tenant some number of floors. So, at this point, it's early. We do - you're right. We got 47,000 square feet back this past quarter, and we'll get the bulk or the balance of the giveback at the end of this year. And we look forward to leasing it up over the next year, maybe a little more, subject to the pandemic.

Blaine, I'll just add - it's Colin, that, again, as we look at the - as you look at the Charlotte market, I think we are very encouraged that in terms of some of the, ultimately, relocation opportunities out of the Northeast into a market like Charlotte, and BofA is positioned as one of the kind of unique large blocks of space that could accommodate a user looking to move into the market.

And then the second question, with the news that Parsley Energy is going to be acquired by Pioneer, have you guys had any recent discussion with them, Parsley, about their space needs and maybe on the interest in subletting any additional space?

Blaine, it's Colin. And first, I'd just start off by saying, Parsley has been a just a terrific relationship and partner for Cousins, and they certainly should be proud of the execution that they've had at Parsley and the value that they've delivered for shareholders. And we've got great relationships with their team there. We have been in contact with them. It's obviously very preliminary in their merger process with Pioneer. I think that being said, I think the Parsley team will be strong advocates for keeping some presence in the Austin market given their success of recruiting engineering talent into that market. But I think time will tell on that. It is interesting, as that announcement has been made, we have received some reverse inquiries as to will there be opportunity to take some of that space, whether sublease or direct. But again, that's all very preliminary. But again, I think encouraging, right, as we think about build-to-suit set at Cousins, we are always focused on high-quality assets and great locations that will have interest and usability for many tenants, multi-tenants. And I think we feel really good about our hand at that particular project.

That's good to hear. Lastly, you guys have a very strong balance sheet. You guys have leverage below that of peers. Can you talk about the investment sales market, what you're seeing there and whether you guys are actively out there kind of looking for acquisitions? And if so, what types of assets are on the market? Are you seeing only core buildings? Or is there value-add? And which way would you guys look for?

Blaine, great question. And as you mentioned, we've put our balance sheet together and created one that's both strong and has liquidity for unique environments and opportunities in the market. And I think, clearly, we're likely to see opportunities coming out of the current disruption in the market. That being said, we are starting to see some assets come out into the market and confidence in the investment sales market, and particularly, in these kind of best urban submarkets of Sunbelt. And I think we're going to see a diverse set of opportunities. I think you'll see some traditional, kind of Cousins value-add acquisition opportunities. I think we'll also see some opportunities to perhaps take advantage of some situations to acquire kind of what I'd characterize as core but strategic existing buildings that we could perhaps pair with some adjacent land in the combination to create really attractive value-add type returns. And I think as we get later into 2021 - we are already having some discussions with folks kind of '22 starts, '23 starts - or excuse me, occupancies that are interested in new development, and in particular, companies that are looking to relocate, wanting to create and control their own environment. So even if office market conditions do deteriorate further, we do think there'll be continued interest in some new development as the market and the world opens back up. So a broad set of opportunities, and we've got, again, the balance sheet to take advantage of those.

The next question comes from Dave Rodgers with Baird. Please go ahead.

Maybe, Richard, to follow-up on Blaine's comment with BofA. Maybe talk about the other two big spaces you have, Norfolk Southern and Anthem. And I mean, do you really look at those as more of an opportunity because you have those larger blocks of space? And I guess, with tenants maybe wanting to spread out a little bit more, are you getting more or less interest in those spaces as people think about those coming available?

Yes. Dave, it's a good question. And I think there's - it's a little early to tell at this point whether people are going to be explicitly asking for more space. We think that's where it's probably headed from a de-densification standpoint. But again, I mean, I'd say the activity on the spaces that we had in Atlanta, both at 1200 Peachtree and at 3350 Peachtree, the interest is fairly similar to what it has been. And it would - I would say that there are multiple groups that have been through the buildings recently. And we feel good about the activity given where we are in the overall macro environment.

Yes. Dave, I'd just add again, both of those buildings are great locations and good amenities that have had capital reinvested into those. And so - and in markets that don't have a lot of speculative space under way. And so we do feel optimistic, again, as the world begins to open up and we start to see more leasing activity, that we can continue to take advantage of opportunities. We certainly like our bases in both of those buildings. Certainly, Bank of America and the Anthem lease here in Atlanta, both of those leases are well below market with kind of the expiring rents in the mid-teens on a triple net basis. So we feel like we've got the opportunity, again, to drive value, grow the rents even in a softer market. So we're encouraged.

Thanks for that. I think with regard to utilization, you guys talked about maybe roughly 20% since Labor Day. You did mention maybe some assets up as high as 50%. Maybe that was one or maybe a small handful. But can you give us a sense for the utilization differences maybe by market or by asset type? Most of the - and most of your assets, I know, are kind of high-rise CBD. But are you seeing meaningful difference? And what drives that kind of 50% number? Is that just a tenant requirement to be in the office or a certain industry?

Dave, it's a great question. And I'd say we do see some, although small, variation by market. As an example, Dallas seems to be ahead of some of the other markets, Tampa as well, kind of generally speaking, in the market. But I'd say those variations are smaller around the average. What really is the larger differentiator is the underlying customer base within that particular building. And we are seeing, for the most part, kind of larger national and international companies perhaps taking a more cautious approach. Perhaps they have a footprint across multiple markets and so have kind of single - perhaps single mandate, single guidelines. Whereas some of our smaller kind of regional and local companies have, I'd say, more kind of local autonomy and local decision-making based on the specific factors in that particular market. And that's where we're seeing, again, some of the, I'd say, the bigger differentiation and - in certain buildings upwards of 50%.

And I guess, maybe lastly, just in terms of the prospect list you talked about and even dovetailing into Gregg's parking comment. I guess, I - I think what you were saying is that all of that's getting better, right? Prospect lift is better at the end of the third quarter than the second quarter and that parking was better in the third quarter than the second quarter. But I wanted to verify that it wasn't just getting worse at a lower rate, one; and then two, maybe, Richard, are you able to put some numbers around that to kind of put that in perspective of per square foot or square foot numbers relative to maybe where you were a year ago or where you'd traditionally be at this point?

Well, I'll kind of start at a high level and maybe kind of follow-up with you in terms of some of the specifics that you're looking for. But again, I would characterize, right, we want to be clear, we're certainly not at kind of pre-pandemic levels. But at the same time, we are seeing improvement. And that's not just kind of a deceleration of the negative. It's actually an increase in our deal pipeline, our existing leasing pipeline as well as, again, the parking numbers in the third quarter were sequentially higher than the second quarter, again, driven by a slight uptick in the utilization. And we think that uptick will continue. Although, as Richard indicated, I don't think we'll see a material change in utilization until we get into next year, and again, I think, until you see some of the, hopefully, near-term announcements as it relates to breakthroughs on the therapeutic and vaccine front. In terms of specifics, Dave, again, if you could clarify perhaps maybe some of the metrics you were looking for.

I think from a high level, you captured what I was looking for. I guess, maybe the one metric, if Richard has any numbers to put around kind of the leasing, the pipeline from an absolute perspective and how you guys think about that even at a high level, at the corporate level versus last year at this time versus 2Q when you reported, if you have any of that. And if not, we can follow up off-line.

Yes. So, in terms of just numbers, again, it's - the pipeline at this time last quarter relative to the pipeline today is 60% higher. So it's roughly, I'd say, rough math, 125,000, 150,000 feet higher than this time last quarter. And the metrics, I would say, there's - without putting numbers around it, I'd say that the metrics are much more consistent within our late-stage pipeline, where we have the best visibility into that with activity prior to the pandemic. It's not quite there. There's still some differences, but it's normalizing and on its way to normalizing. I don't know if that helps answer the question.

Yes, that does. That's what I was looking for. So, thank you all.

Great.

And Dave, that will take, again, a few more quarters for that to kind of fully normalize. But again, I think the uptick has been encouraging. And again, it's been - we're seeing it in all of our different markets in the Sunbelt. And there's, again, some in-market activity and some out-of-market activity. And so again, we'll continue to watch the virus and how that interplays, but it seems to be trending in a positive direction.

This concludes our question-and-answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks.

Well, again, I want to thank you all for joining our third quarter conference call this morning. And I will look forward to hopefully seeing many of you at NAREIT. And again, we appreciate your continued interest in Cousins Properties.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.